Australian mining companies have a poor track record operating in Africa. Australian uranium company Paladin Energy has now put two of its mines into ‘care-and-maintenance’ and bankruptcy looms. But who cleans up the company’s mess in Namibia and Malawi, asks JIM GREEN

Many Australian mining projects in Africa are outposts of good governance – this is what Julie Bishop, the country’s Foreign Minister, told the Africa Down Under mining conference in Western Australia in September 2017. The Australian government “encourages the people of Africa to see us as an open-cut mine for lessons-learned, for skills, for innovation and, I would like to think, inspiration,” the minister said.

But such claims sit uneasily with the highly critical findings arising from a detailed investigation by the International Consortium of Independent Journalists (ICIJ). The ICIJ noted in a 2015 report that since 2004, more than 380 people have died in mining accidents or in off-site skirmishes connected to Australian mining companies in Africa.

The ICIJ report further stated: “Multiple Australian mining companies are accused of negligence, unfair dismissal, violence and environmental law-breaking across Africa, according to legal filings and community petitions gathered from South Africa, Botswana, Tanzania, Zambia, Madagascar, Malawi, Mali, Cote d’Ivoire, Senegal and Ghana.”

Paladin Energy’s Kayelekera uranium mine in Malawi provides a case study of the problems with Australian mining companies in Africa. Western Australia-based Paladin exploited Malawi’s poverty to secure numerous reductions and exemptions from payments normally required by foreign investors.

United Nations’ Special Rapporteur Olivier De Schutter noted in a 2013 report that “revenue losses from special incentives given to Australian mining company Paladin Energy, which manages the Kayelekera uranium mine, are estimated to amount to at least US$205 million (MWK 67 billion) and could be up to US$281 million (MWK 92 billion) over the 13-year lifespan of the mine.”

Standards at Kayelekera fall a long way short of Australian standards ‒ and efforts to force Australian mining companies to meet Australian standards when operating abroad have been strongly resisted. The Kayelekera project would not be approved in Australia due to major flaws in the assessment and design proposals, independent consultants concluded.

Care-and-maintenance

Kayelekera was put into care-and-maintenance in May 2014, another victim of the uranium industry’s post-Fukushima meltdown. And just last month, Paladin announced that its only other operating mine ‒ the Langer Heinrich mine (LHM) in Namibia ‒ will be put into care-and-maintenance.

Perhaps the most striking aspect of the decision to mothball LHM is that Paladin claims it is the lowest cost open-pit uranium mine in the world. Moreover, the company wasn’t even paying to mine ore ‒ mining ceased in November 2016 and since then ore stockpiles have been processed. Thus a low-cost mine can’t even turn a profit processing mined stockpiles.

The cost of production was US$23.11 / lb uranium oxide in December 2017, and the average realised sale price in the second half of 2017 was $21.82.

Anticipating the decision to mothball LHM, Paladin Energy CEO Alex Molyneux said in late-April: “The uranium market has failed to recover since the Fukushima incident in 2011, with the average spot price so far in 2018 the lowest in 15 years. It’s deeply distressing to have to consider suspending operations at LHM because of the consequences for our employees, and the broader community. However, as there has yet to be a sustainable recovery in the uranium market, and with the aim of preserving maximum long-term value for all stakeholders, it is clearly prudent to consider these difficult actions.”

Paladin hopes to resume mining at LHM and Kayelekera following “normalization” of the uranium market, which it anticipates in the next few years. But with no operating mines, Paladin may not survive for long enough to witness a market upswing.

Paladin was placed into the hands of administrators in July 2017 as it was unable to pay French utility EDF a US$277 million debt.

In January 2018, Paladin’s administrator KPMG noted that an Independent Expert’s Report found that the company’s net debt materially exceeds the value of its assets, its shares have nil value, and if Paladin was placed into liquidation there would be no return to shareholders.

The company was restructured, with Deutsche Bank now the largest shareholder, and relisted on the Australian Securities Exchange in February 2018.

Perhaps LHM will be sold for a song, either before or after Paladin goes bankrupt. A subsidiary of China National Nuclear Corporation (CNNC) has held a 25 percent stake in LHM since January 2014. Last year, the CNNC subsidiary considered exercising its contractual right to buy Paladin’s 75 percent stake in LHM, but chose not to exercise that right following an independent valuation of US$162 million for Paladin’s stake.

Mine-site rehabilitation

Paladin hopes to resume mining following “normalization” of the uranium market ‒ but low prices could be the new normal. Former World Nuclear Association executive Steve Kidd said in May 2014 that the industry is set for “a long period of relatively low prices”. Prices were far higher in 2014 than over the past twelve months. Paladin’s CEO Alexander Molyneux said that “it has never been a worse time for uranium miners” in 2016 and the situation has worsened since then for the industry ‒ prices have fallen further still.

Sooner or later ‒ probably sooner ‒ both the LHM and Kayelekera mine-sites will need to be rehabilitated. Yet it is extremely doubtful whether Paladin has set aside adequate funds for rehabilitation. Paladin’s 2017 Annual Report lists a ‘rehabilitation provision‘ of US$86.93 million to cover both LHM and Kayelekera.

One problem is that the funds might not be available for rehabilitation if Paladin goes bankrupt. A second problem is that even if the funds are available, they are unlikely to be sufficient.

For comparison, Energy Resources of Australia’s provision for rehabilitation of the Ranger uranium mine in Australia ‒ also an open-pit uranium mine, like LHM and Kayelekera ‒ is US$403 million (A$526 million). That figure is additional to US$346 million (A$452 million) already spent on water and rehabilitation activities since 2012 ‒ thus total rehabilitation costs could amount to US$749 million (A$978 million) … and the current cost estimates could easily increase as they have in the past.

Rehabilitation of LHM and Kayelekera could be cheaper than rehabilitation of Ranger for several reasons, such as the relative size of the mine-sites. However it stretches credulity to believe that the cost of rehabilitating both LHM and Kayelekera would be an order of magnitude lower than the cost of rehabilitating one mine in Australia.

Paladin was required to lodge a US$10 million Environmental Performance Bond with Malawian banks and presumably that money can be tapped to rehabilitate Kayelekera. But US$10 million won’t scratch the surface. According to a Malawian NGO, the Kayelekera rehabilitation cost is estimated at US$100 million.

Paladin has ignored repeated requests to provide information on the estimated cost of rehabilitating Kayelekera (and also ignored an invitation to comment on a draft of this article), but the figure will be multiples of the US$10 million bond and it is extremely unlikely that Paladin’s provision of US$86.93 million for the rehabilitation of both LHM and Kayelekera is adequate.

If Paladin goes bankrupt, it seems likely that most of the costs associated with the rehabilitation of LHM and Kayelekera will be borne by the Namibian and Malawian governments (with a small fraction of the cost for Kayelekera coming from the bond) ‒ or the mine-sites will not be rehabilitated at all.

Even if Paladin is able to honour its US$86.93 million provision, additional costs necessary for rehabilitation will likely come from the Malawian and Namibian governments, or rehabilitation will be sub-standard.

Problems most acute for Kayelekera

The problem of inadequate provisioning for rehabilitation is most acute for Kayelekera ‒ it is a smaller deposit than LHM and more expensive to mine (Paladin has said that a uranium price of about US$75 per pound would be required for Kayelekera to become economically viable ‒well over twice the current long-term contract price). Thus the prospects for a restart of Kayelekera (and the accumulation of funds for rehabilitation) are especially grim.

Is it reasonable for Australia, a relatively wealthy country, to leave it to the overstretched, under-resourced government of an impoverished nation to clean up the mess left behind by an Australian mining company? Malawi is one of the poorest countries in the world. According to a 2013 UN report, more than half of the population live below the poverty line.

Australia’s Foreign Minister Julie Bishop should intervene to sort out the situation at Kayelekera and to prevent a repetition of this looming fiasco. The conservative Minister’s eyes might glaze over in response to a moral argument about the importance of Australia being a good global citizen. But there is also a hard-headed commercial argument for intervention to ensure that the Kayelekera mine-site is rehabilitated.

It does Australian companies investing in mining ventures abroad no good whatsoever to leave Kayelekera unrehabilitated, a permanent reminder of the untrustworthiness and unfulfilled promises of an Australian miner and the indifference of the Australian government.

Australia is set to become the biggest international miner on the African continent according to the Australia-Africa Minerals & Energy Group. But Australian companies can’t expect to be welcomed if problems such as Kayelekera remain unresolved.

Dr Jim Green is the national nuclear campaigner with Friends of the Earth Australia and editor of the Nuclear Monitor newsletter, where a version of this article was originally published. He is co-author of a new report titled ‘Undermining Africa: Paladin Energy’s Kayelekera Uranium Mine in Malawi’.